Keeping your options straight for health savings plans

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NEW YORK — Health care is an alphabet soup of abbreviations and acronyms, and the ways one can save to pay for care are no different. Here’s a breakdown of the plans:

HSA: Health Savings Account. Think of it as a 401(k) for health care. An individual sets aside money, pretax, in a special bank account that can be used for medical expenses. Companies often make contributions to the account. HSAs are portable, meaning they can be taken with the employee when they leave a company. If used correctly, HSAs help lower taxes three ways: The contributions reduce your taxable income, gains from the invested money are tax free, as are withdrawals for eligible expenses.

HRA: Health Reimbursement Arrangement. A company sets aside money to pay for an employee’s eligible expenses. While some plans allow an employee to roll over the balance year to year, an employee cannot contribute to the account and the money is typically not portable.
Expenses reimbursed by the employer are considered tax free for the employee.

FSA:Flexible Spending Account. An employee sets aside pretax dollars in an employer-sponsored account to pay for health expenses. An employee must use all the money in his or her account during the coverage period or forfeit leftover money. FSAs also exist for mass transit costs and child-care expenses.

HDHP: High-deductible health plan. A type of insurance that has a minimum deductible of $1,200 for individuals, or $2,400 for family coverage. HDHPs are primarily used to cover catastrophic illnesses and emergencies. HSAs can only be used with HDHPs. Another name for HDHP is ‘‘Consumer Driven Health Plan.”

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